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Calculate the Debt to Capital Employed Ratio from the following information: Debt to Equity Ratio 2:1; Long-term Borrowings ₹18,00,000; Long-term Provisions ₹6,00,000; Reserves and Surplus ₹2,00,000.
The given Debt to Equity Ratio of 2:1 uses only Long-term Borrowings (the interest-bearing debt) as its Debt figure:
Equity = Long-term Borrowings ÷ 2 = 18,00,000 ÷ 2 = ₹9,00,000
For the Debt to Capital Employed Ratio, Debt includes both Long-term Borrowings and Long-term Provisions:
Debt = 18,00,000 + 6,00,000 = ₹24,00,000
Capital Employed = Debt + Equity = 24,00,000 + 9,00,000 = ₹33,00,000
Debt to Capital Employed Ratio = 24,00,000 ÷ 33,00,000 = 0.73:1
Note: Reserves and Surplus is not added separately, as it is already part of the Equity derived above via the Debt to Equity Ratio.
Accounting & Commerce Educator
Sarbjit Singh holds a B.Com and M.Com degree and has over 12 years of teaching experience in double entry bookkeeping, financial accounting, and business studies.
This guide covers "T.S. Grewal Class 12 Vol 3 Chapter 4 Q.77 - Accounting Ratios", focusing on key definitions, step-by-step concepts, applications, and revision guidelines relevant to Chapter 4 - Accounting Ratios.
It is primarily curated for Class 11 and Class 12 high school commerce, accounting, and economics students, as well as aspirants preparing for board exams or CA Foundation.
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